Income Tax Act 2007 (c. 3)

[F1 PART 5B U.K. Tax relief for social investments

Textual Amendments

F1 Pt. 5B inserted (17.7.2014) by Finance Act 2014 (c. 26), Sch. 11 para. 1

CHAPTER 4 U.K. Eligibility: conditions relating to the social enterprise

Interpretation of conditions relating to the social enterprise U.K.

257MP Meaning of “qualifying trade” U.K.

(1) For the purposes of this Chapter, a trade is a qualifying trade if—

(a) it is conducted on a commercial basis and with a view to the realisation of profits, and

(b) it does not at any time in the shorter applicable period consist wholly or as to a substantial part in the carrying-on of excluded activities.

(2) References in this section and sections 257MQ to 257MT (excluded activities) to a trade are to be read without regard to the definition of “trade” in section 989.

257MQ Meaning of “excluded activity” U.K.

(1) The following are excluded activities for the purposes of sections 257JD, 257MJ and 257MP—

(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments,

(b) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities (but see subsection (2)),

(c) property development (see section 257MR),

(d) activities in the fishery and aquaculture sector that is covered by Council Regulation (EC) No. 104/2000 of 17 December 1999 on the common organisation of the markets in fishery and aquaculture products,

(e) the primary production of products listed in Annex I to the Treaty on the Functioning of the European Union (agricultural etc products), with the exception of products covered by Council Regulation (EC) No. 104/2000 (fishery and aquaculture products),

(f) the subsidised generation or export of electricity (see section 257MS),

(g) road freight transport for hire or reward, and

(h) providing services or facilities for a business carried on by another person (other than a company of which the provider of the services or facilities is a qualifying subsidiary) if—

(i) the business consists wholly or as to a substantial part of activities falling within any of paragraphs (a) to (g), and

(ii) a controlling interest (see section 257MT) in the business is held by a person who also has a controlling interest in the business carried on by the provider of the services or facilities.

(2) The activity of lending money to a social enterprise is not an excluded activity for the purposes of sections 257MJ and 257MP.

257MR Excluded activities: property development U.K.

(1) For the purposes of section 257MQ(1)(c) “property development” means the development of land—

(a) by a company which has, or at any time has had, an interest in the land, and

(b) with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed.

(2) For the purposes of subsection (1) “interest in land” means (subject to subsection (3))—

(a) any estate, interest or right in or over land, including any right affecting the use or disposition of land, or

(b) any right to obtain such an estate, interest or right from another which is conditional on the other's ability to grant it.

(3) References in this section to an interest in land do not include—

(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land, or

(b) in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.

257MS Excluded activity: subsidised generation or export of electricity U.K.

(1) This section supplements section 257MQ(1)(f).

(2) Electricity is exported if it is exported onto a distribution system or transmission system (within the meaning of section 4 of the Electricity Act 1989).

(3) The generation of electricity is subsidised if a person receives a FIT subsidy in respect of the electricity generated.

(4) The export of electricity is subsidised if a person receives a FIT subsidy in respect of the electricity exported.

(5) In this section—

• “FIT subsidy” means—

  (a)

  a financial incentive under a scheme established by virtue of section 41 of the Energy Act 2008 (powers to amend licence conditions etc: feed-in tariffs) to encourage small-scale low-carbon generation of electricity, or

  (b)

  a financial incentive under a similar scheme established in Northern Ireland, or in a territory outside the United Kingdom, to encourage small-scale low-carbon generation of electricity;

• “small-scale low-carbon generation of electricity” has the meaning given by section 41(4) of the Energy Act 2008.

257MT Excluded activity: providing services or facilities for another business U.K.

(1) This section explains what is meant by a controlling interest in a business for the purposes of section 257MQ(1)(h).

(2) In the case of a business carried on by a company, a person (“A”) has a controlling interest in the business if—

(a) A controls the company,

(b) the company is a close company and A, or an associate of A, is a director of the company and either—

(i) is the beneficial owner of more than 30% of the ordinary share capital of the company, or

(ii) is able, directly or through the medium of other companies or by any other indirect means, to control more than 30% of that share capital, or

(c) at least half of the business could, in accordance with section 942 of CTA 2010, be regarded as belonging to A for the purposes of section 941 of CTA 2010 (company reconstructions without a change of ownership).

(3) In any other case, a person has a controlling interest in a business if the person is entitled to at least half of the assets used for, or of the income arising from, the business.

(4) For the purposes of this section—

(a) any rights or powers of a person who is an associate of another are to be attributed to that other person, and

(b) “business” includes any trade, profession or vocation.

257MU Meaning of “qualifying subsidiary” U.K.

(1) For the purposes of this Part, a company (“the subsidiary”) is a qualifying subsidiary of another company (“the parent”) if—

(a) the subsidiary is a 51% subsidiary of the parent,

(b) no person other than the parent, or another of its subsidiaries, has control of the subsidiary, and

(c) no arrangements are in existence as a result of which either of the conditions in paragraphs (a) and (b) would cease to be met.

(2) The conditions in subsection (1)(a) to (c) do not cease to be met merely because the subsidiary or any other company is wound up, or dissolved without winding up, if the winding-up or dissolution—

(a) is for genuine commercial reasons, and

(b) is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.

(3) The conditions in subsection (1)(a) to (c) do not cease to be met merely because of anything done as a consequence of the subsidiary or another company being in administration, or receivership, if—

(a) the entry into administration or receivership, and

(b) everything done as a consequence of the company concerned being in administration or receivership,

is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.

(4) The conditions in subsection (1)(a) to (c) do not cease to be met merely because arrangements are in existence for the disposal by the parent or (as the case may be) by another subsidiary of all its interest in the subsidiary if the disposal—

(a) is to be for genuine commercial reasons, and

(b) is not to be part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.

257MV Meaning of “90% social subsidiary” of a social enterprise U.K.

(1) For the purposes of this Chapter, a company (“the subsidiary”) is a 90% social subsidiary of another company (“the parent”) if—

(a) the subsidiary is a social enterprise,

(b) the parent possesses at least 90% of the issued share capital of, and at least 90% of the voting power in, the subsidiary,

(c) the parent would—

(i) in the event of a winding-up of the subsidiary, or

(ii) in any other circumstances,

be beneficially entitled to receive at least 90% of the assets of the subsidiary which would then be available for distribution to equity holders of the subsidiary,

(d) the parent is beneficially entitled to receive at least 90% of any profits of the subsidiary which are available for distribution to equity holders of the subsidiary,

(e) no person other than the parent has control of the subsidiary, and

(f) no arrangements are in existence as a result of which any of the conditions in paragraphs (a) to (e) would cease to be met.

(2) For the purposes of this Chapter, a company (“company A”) which is a subsidiary of another company (“company B”) is a 90% social subsidiary of a third company (“company C”) if—

(a) company A is a 90% social subsidiary of company B, and company B is a 100% social subsidiary of company C, or

(b) company A is a 100% social subsidiary of company B, and company B is a 90% social subsidiary of company C.

(3) For the purposes of subsection (2) no account is to be taken of any control company C may have of company A.

(4) For the purposes of subsection (2), a company (“company X”) is a 100% social subsidiary of another company (“company Y”) at any time when the conditions in subsection (1)(a) to (f) would be met if—

(a) company X were the subsidiary,

(b) company Y were the parent, and

(c) in subsection (1) for “at least 90%” there were substituted “ 100% ”.

(5) The conditions in subsection (1)(a) to (f) do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being wound up, or dissolved without being wound up, if the winding-up or dissolution—

(a) is for genuine commercial reasons, and

(b) is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.

(6) The conditions in subsection (1)(a) to (f) do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being in administration, or receivership, if—

(a) the entry into administration or receivership, and

(b) everything done as a consequence of the company concerned being in administration or receivership,

is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.

(7) The conditions in subsection (1)(a) to (f) do not cease to be met merely because any arrangements are in existence for the disposal by the parent of all its interest in the subsidiary if the disposal—

(a) is to be for genuine commercial reasons, and

(b) is not to be part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.

(8) For the purposes of subsection (1)—

(a) the persons who are equity holders of the subsidiary, and

(b) the percentage of the assets of the subsidiary to which an equity holder would be entitled,

are to be determined in accordance with Chapter 6 of Part 5 of CTA 2010.

(9) In making that determination—

(a) references in section 166 of that Act to company A are to be read as references to an equity holder, and

(b) references in that section to winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.]